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The Office for Budget Responsibility (OBR) last week slashed its growth forecasts for the UK economy and told chancellor George Osborne he would miss his target of reducing the country’s debt burden by 2015-16.

In his Autumn Statement, delivered last week, the chancellor revealed the OBR had cut its forecast for the UK economy this year from growth of 0.8 per cent to a contraction of 0.1 per cent.

It also cut the forecast for economic growth in 2013 from 2 per cent to 1.2 per cent.

Labour’s shadow chancellor Ed Balls seized upon the figures to point out that Mr Osborne had broken his own ‘rule’ on UK debt – to ensure debt as a percentage of national income begins to fall by 2015-16.

Instead, UK economic output is now forecast to grow by 4.6 per cent in 2015-16, while debt is expected to grow by 5.9 per cent.

It means the UK faces another year of austerity measures on top of the seven already laid out by the government. The OBR said the cut in forecasts was in part down to the knock-on effects of the UK’s slump into recession in 2008-09, which was revised down last week to show a contraction in output of 6.3 per cent. Mr Osborne said this was “the largest shock to our economy since the Second World War”.

Mr Osborne said: “In the OBR’s view, the aftermath of this shock continues to weigh on the productivity of the UK economy, with credit rationing and impaired financial markets potentially impeding the expansion of successful firms.

“The OBR had previously assumed the eurozone would begin to recover in the second half of this year; instead, of course, it has continued to contract and that has hit our exports to these markets and the net trade numbers.”

The forecasts for the total amount the UK will borrow in the next five years were also revised up. Instead of cutting borrowing to £21bn by 2016-17, as he forecast in his Budget in March, Mr Osborne said UK borrowing will fall to £56.7bn – more than twice the target from its current £121m.

Credit rating agency Fitch said the failure to meet debt reduction targets had “weakened the credibility” of the UK’s AAA credit rating. Both Fitch and Moody’s, another of the main rating agencies, put the UK’s AAA rating on negative watch earlier this year. Fitch will conduct a full review of the UK’s rating next year following the next Budget statement.

What the experts made of George Osborne’s speech

Azad Zangana, European economist, Schroders

“The statement offered little in the way of support for the overall economy in the near term. The minor reprioritisation of public spending away from current departmental spending and towards public investment is welcomed, and the tax measures for businesses could help boost investment in the medium term.